How Good Has Home Depot (HD) Stock Actually Been?

Home Depot (NYSE: HD) is a huge business that's the leader in the home improvement market. In the past 12 months, it raked in $166 billion in sales, nearly double the total of its closest competitor, Lowe's.

Currently, Home Depot has more than 2,000 stores just in the U.S.

Home Depot is a household name. But how has this top retail stock performed for shareholders in the past?

Image source: Home Depot.

Home Depot comes up short of the S&P 500

Investors will be extremely disappointed after looking at Home Depot's performance in recent years. In the last 12 months, owning the business would have resulted in shareholders losing 17% of their starting capital (as of Dec. 9). The S&P 500 produced a total return of 14% at the same time.

Over the past three- and five-year stretches, Home Depot generated total returns of 17% and 51%, respectively. Again, these gains come up well short of the widely followed benchmark. Home Depot does pay a quarterly dividend of $2.30 that supports shareholder returns. And the current dividend yield of 2.65% can be attractive to income investors.

The recent stretch of market underperformance might be a shocking development for some. That's because Home Depot has crushed the S&P 500 in the last 30 years, putting up a monster 6,100% total return compared to the index's 1,820%. Softer macro conditions lately have pressured spending on renovations, directly hurting sales for the business and negatively impacting investor confidence.

Home Depot is positioned well in the industry

All signs point to Home Depot being a high-quality business. It has a strong brand name in the home improvement market. Thanks to its scale, the company possesses unmatched inventory availability, ensuring its customers have access to whatever products they need. It's able to better leverage its costs over a larger store base. And it has a strong omnichannel presence, allowing customers to shop however they want. This gives it the upper hand versus subscale rivals in the industry that simply can't compete effectively on these factors.

Zooming out and looking at the big picture, Home Depot is staring at a meaningful opportunity. The home improvement sector is estimated to have a total addressable market worth $1 trillion, which means that the business has so far only captured about 16% of the entire industry.

There is a key tailwind that supports its long-term trajectory. The median age of houses steadily rises over time, now at about 40 years old. This supports durable demand for upgrades and renovations.

Even great businesses can have stretches when they underperform the broader market. Home Depot is a perfect example of this.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.